Taxes, Myths, Taking a Knee
by Doyle Ranstrom on Feb 20, 2022
I started working on my tax return for 2021. I have been sending in tax returns and paying taxes for a long time. As I was getting the information together, I found my old returns which I have kept over the years. Among other things, when I feel like a failure, they help remind my little business grew over the years as I made more money and of course paid more in taxes. I never complained about paying taxes because they are the result of making money.
Back in the day when I first self-employed I made very little money and paid very little in taxes. Paying a lot of taxes is better, much much better.
Years ago I worked was a client who was a successful small business owner who once said something like "no one likes paying taxes, but paying taxes are how we support this country we all love and the freedoms it provides". "What happened?" he then asked.
What happened is we were fed a myth [or outright lie] that cutting taxes will lead to good economic times. And maybe that might have been true if we cut taxes and reduced spending. But we did not do that.
In 1961 the marginal tax rate for federal income tax was 91%. This was lower than the historical high marginal tax rate of 94% in 1945 and 1946. In 1946 the marginal tax rate was reduced to 86.45% and from then until 1961 ranged a low of 82.13% to a high of 92%. There was a reason for this. From 1940 the federal deficit went from $43 Billion to $269 Billion in 1946. The greatest generation not only won WWII and saved the world but also felt it was their responsibility to pay for it so it would not be burden on the next generation, baby boomers.
My generation, baby boomers took an entirely different approach which has been generally to charge it and send the bill the grandkids.
From 1961 the marginal tax rate dropped from 91% to 71.75% in 1970. And as many of us remember, the 1960s were not an easy time period. For example, Bay of Pigs, racial violence/protest, the assignations of JFK, RF, MLK and of course the beginning and escalation of the Vietnam War to name a few. The deficit went from $289 Billion in 1961 to $371 Billion in 1970 or a total increase of about 28%. Remember the good old days we measured the deficit in billions, not trillions.
- Using simple cumulative numbers, from 1961-1970 GDP increased by 41.5% and the stock market as measured by the S&P Index increased 55.4%.
In 1982, the marginal tax rate was reduced to 50% and the gradual reduction in marginal tax rates continued so by 2001 it was 39.10%. The deficit in 2001 was $5.8 Trillion. From 2001 thru 2010 GDP cumulatively was 17.5% and the cumulative gain in the S&P Index was 16.8%. So compared to 1961-1970, GDP was much lower, the S&P had a much lower total gain and of course we cut taxes again. Oh, and the deficit increased to $13.6 Trillion or about 134% over the time period.
How about 2011 through 2020. The marginal tax rate was briefly raised from 2013 thru 2017 to 39.6%, but then was reduced to 37% in 2018 which is where we are now. From 2011 thru 2020 GDP had a cumulative gain of 17% which still far behind 1961-1970. The S&P had a substantial gain of 120% [again cumulatively], but what was the cost. The deficit increased from $13.6 Trillion to $27 Trillion or almost 100%.
I used simple math and cumulative numbers, but to me, the picture is very clear. The politicians and their followers who have implemented policies of cutting taxes and increasing expenditures over the years have pushed are country towards bankruptcy. A detailed analysis is not going to change the big picture.
A few years ago an elite black athlete took a knee during the National Anthem. Before doing so, he had consulted with a white former professional athlete and Navy Seal. This has been followed by many other athletes of all backgrounds doing the same throughout the country. It has also been widely criticized by many for being disrespectful and/or ungrateful. I have often wondered why there has not been similar outrage over politicians and followers who have greatly increased our federal deficit by consistently cutting taxes and increasing expenditures. What's more un-American, kneeling during the Anthem or pushing our country towards bankruptcy?
I do not see any will power in the US for decreasing expenditures, but our country has had historical will power to raise revenues to its meet obligations. it is time for us to do this again.